Holland & Knight Committee for Effective Government

Last year the Federal Election Commission heard from Holland and Knight, a limited liability law partnership organized under Florida law, that asked whether, having elected tax treatment as a corporation under federal tax law, it could operate its political committee as a corporate PAC and pay without limit for its PAC administrative expenses. The Commission could not then come up with the four votes needed for a decision.

In July, the new Commission did decide the case. It voted, 5-1, that state law, not federal tax law, controlled, and that Holland Knight was not a corporation, and its political committee not a corporate PAC, for federal campaign finance purposes. Under Florida law, the firm remained a partnership, though it is taxed as a corporation in states other than Florida and Massachusetts.

Now few may care—the regulatory status quo was preserved. It is interesting to note, however, that for this new Commission, the choice before it was one between a formalistic and a functional reading: between focusing on state law, which it has been generally the agency’s practice to do, and considering the actual character of the entity before it. The Commission chose the formalistic reading.

On the more functional reading, and as the General Counsel noted in one of the alternative drafts, the law firm was in its essential features like a corporation, "putting itself in a position ‘to accumulate capital at the corporate level, … to take advantage of favorable tax treatment of corporate losses and dividends received’", and to extend limited liability protection to its owners. OGC Draft, Alternative B, at 4. The Commission has previously taken factors such as these into account in promulgating rules to treat limited liability companies (LLCs) as either corporations or partners, depending on the entity’s election of federal tax treatment. 11 C.F.R. § 110.1(g)(2)-(3).

In the case of LLPs such as Holland and Knight, the Commission has now chosen to stay with the formalistic reading, based on how the firm was organized under state law. Since the Holland and Knight PAC is therefore not a corporate PAC of a "connected" corporate sponsor, the firm can contribute to its PAC, up to the lawful limits ($5,000 per calendar year), but it cannot provide unlimited funding for PAC operations. But restricted in one way, it is liberated in another: unlike a corporation or its PAC, a "non-connected" PAC can solicit whomever it pleases for contributions to its PAC.

But, of course, the Holland and Knight political committee is "connected" to the partnership: it has been named "The Holland and Knight Committee for Effective Government." It has been established to carry out the political program, and to effectuate the political will, of the firm. The firm, electing corporate tax treatment, presents as a corporation—"in effect ‘telling the IRS that its organizational structure and functions are more akin to a corporation than a partnership’", OGC Draft, Alternative B at 3.

The Holland and Knight Committee for Effective Government is not, however, a corporate PAC. This new Commission approved this result by a decisive margin. These are not much in the way of tea leaves, but some will read into them what they will.